16 July 2018

Address to the Chamber of Commerce and Industry WA, Business Breakfast, Perth, Western Australia


So I said that I'd return with an answer this time last year, and here I am and I have with the great assistance of Mathias Cormann who I'm pleased to have with me today and Ben Morton. And to others I extend a warm welcome particularly to all at the Chamber, can I say thank you for the leadership that you've shown, for the partnership that you offered to work with the Commonwealth, to work through what has been a difficult issue at a national level, to engage and to negotiate through and to ensure that we've come up, I believe, with a long term, real plan that rectifies what has been, I think, a real significant and genuine grievance. A grievance not just for WA but a national grievance for an issue that had been kicked down the road for too long, required addressing and that's exactly what we've done.

There was a problem, as I said at this event last year. The problem where WA had been put in a position, where it was receiving less GST revenue than the Northern Territory and Tasmania, that had become an absurd result for a formula that clearly wasn't working. No one, regardless of where you live in the country, can you look at that situation and say where WA has got less than 30 cents per capita share less of a distribution – there's no argument you can put that says that is not a broken system that has produced that result. Now that is something we've always been very aware of and we knew it had to be solved. The issue was it wasn't just the unfairness of it. The issue was that there was a profound and deeper system problem that had to be addressed. It wasn't just about who was getting what, it was actually about why was this system producing these absurd results, and what was the problem from a national economy point of view.

As we've just said, this wasn't about some parochial argument, this was about a genuine national problem that required a government to take seriously, look into carefully, and to devise a way forward for the whole country, not just for Western Australia, but for the whole country. I particularly want to thank Western Australians, I particularly want to thank my Western Australian colleagues, for their patience as we've set about that task of delivering an outcome that we believe does meet the mark of ensuring we have a, a system reform that protects against the vulnerabilities that have been identified as we work through the issue. Now, it was no one's fault this system produced these results, no one designed the system to produce these results, so it wasn't some sort of partisan debate about how this happened. There's certainly been some politics about what has been done and what wasn't done, but the issue of what produced this absurd outcome and this punishing outcome, in particular for WA, that was the more fundamental issue that had to be considered and addressed. So it was nobody's fault but it did require a solution and as a Commonwealth Government, the Federal Government, the Turnbull Government, we took on the challenge of fixing it, to provide a solution that was sensible, that was fair and as I said last year, a solution that was durable. No quick fixes, no side deals or special deals.

As we entered into this process of solving this problem, we knew that we would have to create some time and space. That's why when we came to government, and with the strong advocacy particularly out of the West and Mathias as Finance Minister - and can I also acknowledge I think Hayley Cormann is here today too. Mathias and all the Western Australian colleagues put it upon us really to ensure that at least the drop that had been experienced under the Labor years about which nothing had been done; remember the GST share had fallen from a dollar down to about 37 [cents] and nothing been done. There was no top up, there was no acknowledgment of a problem, there was no acceptance of any recommendations, the changes to – none of that had happened. Over that entire period, it just went down and down and down and down and down and down. Deaf ears. But Western Australian colleagues ensured that right from the outset, we stopped the drop, we put it in place the top ups to ensure that it didn't fall any lower than 37 cents and we kept that in place in all of the Budgets we've brought down, and in the most recent Budget we ensured that that 37 stopped, the drop went up to 50.

But we knew that wasn't a long term solution. We knew that wasn't the way to fix it. WA's point was not: "we're just not getting enough money". WA's point was: "we're not a beggar state, we're not a state that wants to go cap in hand every year to the Commonwealth to try and get some compensation." That wasn't the solution that was necessary; it wasn't the solution that the Government had any long term interest in at all. We knew we had to provide some short term relief but ultimately that was only a platform for moving towards a long term solution.

And it had to be a national solution, it had to be a national solution that respected the federation. It had to be a national solution that could take the rest of the country with us. It had to respect the federal principles, an important one of which is the fact – and I come from New South Wales, where stronger states support the not-so-strong states. That principle was established when Barton and Deakin and Forrest and a whole range of others got together and that principle has been an important principle for our federation. And our federation, I've got to tell you, even with the weaknesses of the way the GST and prior to that other payments had distributed around the state and territories, our system is actually superior to any other system anywhere else in the world. It has ensured a strong federation for more than a century. It has gone through different iterations over that period of time and going through another one now. But the one we're going through now has also been supported and encouraged by the same principles that always holds the federation together. And that is that we are one country. We're passionate about our corners of it, I'm as passionate about my Shire, my Sharks as you are about your Eagles or Dockers or Perth or whatever part of Western Australia you come from. But we're more passionate about being Australians. That's always been our psyche as a country.

And so that principle of the federation must work and how this is dealt with is very important as a Government. We couldn't ignore the problem in WA but then deal with it and ignore the importance of the federation and the principles that underpin the federation. So a national solution was very important in respecting the federation. And it also had to be a practical solution. It wasn't about going off to some economist picnic and sitting around the blanket there and swapping anecdotes and stories about horizontal fiscal equalisation and getting our calculators out. I'm sure Rick would have enjoyed an economists' picnic. But, you know, in politics, in government more importantly I should say this, in government it's about doing things, changing things, improving things, and to do that, as Mathias has been able to demonstrate in the Senate, it's about getting stuff done. And so you have to have solutions that can stick, that you can pass, that you can implement, that will be durable. And so these were the tests that we set ourselves: a practical solution, a national solution, a durable solution, a fair solution. We accepted responsibility to fix it. It was not going to be kicked down the road. By-elections emerging, sure. Election's coming up, sure. Political cycle is always present. The problem had to be fixed.

So I do appreciate the patience of Western Australians, as we've sought to resolve this issue and address the very things that I've just mentioned. And we have, and I won't go through the plan again today, I'm sure you've read it closely. And I refer you to the West today, where I've set it out again in an op-ed in the same way that Mathias did a couple of weeks ago. You know the plan. We'll continue the top up arrangements to get back up to 70 over the next few years, we will then go through a six-year transition period where we change the formula. The idea that you could deal with this problem and not change the formula was a non-starter because the formula was ultimately the problem. There was a built-in vulnerability in the formula, which said that any state for that matter could actually propel itself to the top of the table, with any sort of economic shock, and frankly the smaller the state or territory, the bigger the economic impact on that state, or particular event. In Western Australia it was a minerals boom, it could be similar things in other states, then that state shoots to the top of the ladder, and basically turns the entire formula on its head.

The problem with the formula was basically this: it was not anchored to a benchmark that had an economic critical mass. If the same minerals boom, that we were talking about at our table a few minutes ago, putting geology aside for one second, had occurred in New South Wales, then the proportional impact on the New South Wales economy of a mining boom of that size in New South Wales, would of course have been smaller than the impact on Western Australia. Its impact on the overall fiscal strength of New South Wales would not have had the same impact as it did here in Western Australia. And so what happened was Western Australia shot to the top and basically turned the formula on its head.

Now going back to that rather pleasant image, I'm sure, of the economist picnic, and everyone's sitting around the blanket. I mean, technically for them, they would be able to say that the Northern Territory could have something like that occur, and we could have a formula of the distribution of the entire GST based on the Northern Territory as the strongest fiscal jurisdiction. Now I don't think that is likely, but it's not impossible, and so there was a problem in how it was working. And so to those who say, in other parts of the country, that this doesn't equate to major policy change, I'd say they've completely missed the point. The problem with the formula is that it was not anchored on critical mass economies that provided the stability, to how the formula would work and how the revenue was distributed. And that's what needed to change. And that's what we have changed by linking it to the stronger of either New South Wales or Victoria.

Now one of the other things that flow from that, and this is very important: the biggest policy bias that exists under the current formula is that it penalises states, particularly other than New South Wales and Victoria, that choose to exploit and develop their resources, as Western Australia has done. Under what the Government has come forward with, that will no longer be the case. Western Australia will never be penalised again, under the GST distribution formula for developing the natural wealth of this state. And I think that's an important change for Western Australia but I tell you what, it's an even more important change to the nation. I mean, Western Australia has about 10 per cent of the population and 14 per cent of the economy and that's on the other side of the mining boom. We want our states and territories to do what Western Australia has done. One of the big problem I had with this formula is that it was penalising Western Australia for doing exactly the thing that we wanted all the other states and territories to do. That's why it was important to change it.

Now the floors we've put in place at 70 and then 75, that's belts and braces. It's important belts and braces and I think it provides that assurance. It provides also the same assurance to New South Wales and Victoria that they also won't go below 75 or in the shorter term below 70. But the same guarantee applies to Queensland or other states, where they choose to go down the path that Western Australia have, that they won't face those sorts of shocks and those sorts of penalties as a result of the system. Because the way the system works is this: assessing a state's fiscal capacity basically we look at all of its ability to raise revenue and so on. The one thing the formula couldn't do was say "what's the value of what you have in the ground?" In Western Australia, that only gets entered into the formula the minute you put the shovel in the dirt. Prior to that, it's not taken into account. The minute you start pulling it out, is the minute it starts becoming part of the formula. And for other states, who choose to leave it in the ground, there's no penalty, or no disincentive, or incentive to take it [inaudible]. So for those who chose to do it, particular states like Western Australia, well, you've lived through the experience. And so that's why the change that we've made actually addresses the biggest policy bias that was existing in the formula. And then putting in the floors provides those safeguards and guarantees. And then by making the pie bigger, we ensure that any impacts on any other state and territory, because of these changes, permanently, are taken into account, and overwhelmed by the larger pie's distributional effects [inaudible].

So what we've put forward is durable, it's sensible, it's practical, it's national, and it's fair. It's fair to all states and territories. And it finally ensures that WA gets the fair share that it was only ever asking for. Now, we have done that for a very important reason. I could bore you this morning about our opponents, but I'm not going to do that. You all know that they didn't act when they could have. You all know they said when the PC report came out "we will not change the formula". You all know that they were against floors, for floors, against floors, for floors. You know all that. But I'll tell you why you can trust us on this – because we believe it. Simple.

Our Government is built on many principles and things that we believe. We believe that the best form of welfare is a job. We believe that government should live within their means. We believe in a fair go. But there's an important addition to that for us. We believe in a fair go for those who will have a go. It's not about giving everybody the same. It's about giving everybody in this country the same opportunity wherever you live to ensure that the state government that's there has the fiscal capacity to support hospitals and schools and all the things that state government's deliver. That's what we do through the system. But it's not there for passengers. It's not there for those who want someone else to carry their water for them when they are capable of carrying it themselves. One of the reasons I'm so passionate about supporting the NDIS, I know it's got its challenges, but one of the things that's important about the NDIS, as a former Social Services Minister, is this: it's seeking to back people who may not have had the opportunities that others have had in terms of how life circumstances have dealt them. But it gives them the ability and the capacity to have a go. That's all Western Australia was seeking to do, was have a go. With what was in the ground, what was around about them, their people, and their ingenuity. And we believe in states that want to have a go and people who live in states that want to have a go all across the country. When we come across something that we think penalises that, then we feel compelled to act because it goes so fundamentally against what we believe in.

Now, if you believe in a fair go for those who have a go, then we're on your side. And we've demonstrated that by the actions that we've taken when it comes to this this solution for the GST. But it's not the only place. When it comes to ensuring that you get to keep more of what you earn, through taxes being lower around the country. Whether it's personal income taxes, where we have legislated those, or whether it is for business taxes and making sure they're competitive, already legislated for businesses up to $50 million in turnover. And we continue to work to ensure that that broad scale economy tax relief goes right across. It's simple: we believe that you should keep more of what you earn. We think you'll do better with it then the government will do with it. That's why we are doing it. That's why we are fixing the GST. That's why we are lowering taxes. That's why we are investing in infrastructure right across the country to support the investment that the country needs to continue to grow. We believe that a stronger economy is what guarantees essential services that Australians rely on like hospitals and schools. We believe a stronger economy is what keeps Australians safe because you can afford to invest in the security establishment and agencies and defence forces and boarder forces that do all of those things. If you don't have a plan for a stronger economy then you don't have a plan for any of those other things. Because without it it's all just talk.

So when I talk about the changes we've made to the GST, which I welcome the support for here in Western Australia, what I'm really talking about is the expression of a core belief and a core value of the Turnbull Government, which says we want to see WA strong again. We don't want to see it held back. We don't want to see it penalised for going out and securing and maximising and exploiting the opportunities it has before it, and we want that to be the truth for every single state and territory in the country. We want state governments to back that in as well and you can make your own judgments on that, and hold state governments here or elsewhere for those from other states to account in achieving that. But we can't have things that get in the way of helping them to achieve that.

Let me just finish on this and then we'll go to some questions. I've talked about the need for a stronger economy and I want to bring that back to the GST itself. You know, for all that talk about GST distributions, the biggest impact on how much money comes back to the states against falls back to how strong the economy is. You know, if we had consumption growing at 1 per cent less in one year, just one year, that would cost the GST pool over a decade $7 billion. This package as you know is about that entire amount. Now just imagine if that didn't just happen over one year, it happened over more than one year, then you're in to the tens of billions of dollars. For all the talk about how it's distributed, let's not lose sight of the more important thing, and that is how big is the pie. You don't get a bigger pie if you lob on $200 billion in higher taxes over the next ten years. You don't get a bigger pie unless you engage in the things that sees industry invest and we've seen occur in this country - non-mining investment up ten per cent, five times the long run average; eight consecutive quarters, the longest run in 20 years. That's a product of policies, an ambitious country that is choosing to invest. Consumer confidence, its highest level in almost five years. Business conditions you know, particularly if you go to the eastern states, and we're seeing that turn here, and I'm pleased to see the report coming from WACCI today in terms of rising business confidence here in Western Australia.

Without a stronger economy, none of this can occur. And that's why, at the end of the day, our plan for a stronger economy, our commitment to a stronger economy, is the reason you can take our promises to the bank. Whether it's the promise to fix the GST, the promise to reduce taxes, whether it's the promise to keep focusing on trade outcomes that build our country and provide opportunities for all Australians, it's our commitment to the stronger economy that makes that difference at the end of the day. So that's why we do what we do.

You may like what we've done on the GST, but I would hope that why we did it is an even more compelling argument. Thank you very much.